China Reaches WTO Deal.

Insurers are eager to expand into China; congressional votes move Vietnam closer to opening its market.

China has reached agreement on the terms of its entry into the World Trade Organization, including a compromise on an insurance issue that could still be left to interpretation by some, said an insurance association.

The agreement, formalized Sept. 17 in Geneva, would allow China to become part of the international rule of law for trade, as long as the full WTO membership approves. That's expected to happen at a November meeting in Doha, Qatar. China's government will have to approve the agreement after the Doha meeting, said John Savercool, vice president for federal affairs with the American Insurance Association.

The WTO pact opens the door for U.S. and other foreign insurers to gradually enter China's market.

Everything looks "great" at this point, said Kevin Cronin, president of the International Insurance Council. "The insurance community has been a supporter of China's membership for a number of years," he said.

The WTO pact includes the Chinese agreement made in June in Shanghai to phase out a requirement that insurers cede 20% of their premium to the state-run reinsurance company Property/casualty insurers writing commercial risk in China had to give 20% of the premiums to China Reinsurance Co. That cession is being reduced to zero over a five-year period.

Among the issues holding up the conclusion of China's WTO Working Party meeting was the rights of U.S. insurance companies that currently operate in China, U.S. Trade Representative Robert B. Zoellick said in a statement. When the United States and China reached a bilateral trade agreement in 1999, negotiators agreed to "grandfather" all existing rights acquired by foreign services companies upon China's WTO accession. This included the license of American International Group Inc. in China, which calls for the company to have 100% ownership of its branches. That 1999 agreement is "preserved and strengthened" in this final Working Party report, Zoellick said.

Most-favored-nation status in the WTO is based on giving all members treatment equivalent to the best treatment afforded any individual WTO member, said Brad Smith, managing director of international relations for the American Council of Life Insurers. All members benefit from whichever country makes the best deal with China, since all WTO members have to be treated the same, including European Union insurers that thought AIG was gaining an unfair advantage, Smith said.

Foreign insurers will be allowed to expand in three Chinese cities upon the country's accession. Twelve cities will be added to the list after two years, and all of China will be open after three years, Smith said.

Pension plans will have to wait five years before entering, because China doesn't have a pension law yet, Smith said.

U.S. House Approves Vietnam Trade Agreement

The U.S. House has approved a bilateral trade agreement with Vietnam in a move that could help open that market to insurers.

The agreement should be helpful to insurers because it accelerates the time foreign insurers can enter the Vietnamese market to possibly sooner than 2002, said John Savercool, vice president for federal affairs with the American Insurance Association.

Several companies have expressed an interest in Vietnam, and the country has accepted applications, but the approval process is slow, he said.

"Applications are basically sitting on a desk and there's no commitment to seriously consider them," Savercool said. "But with rules in place, the U.S. can formally object if applications from its companies are not considered."

Vietnam has about 80 million people, with very few insured, Savercool said. Vietnam's insurance penetration, or dollars spent on insurance, is about 0.5% of its gross domestic product as of 1997, the latest figures Savercool had available.

By comparison, South Korea spends 13.8% of its gross domestic product on insurance, and for other developing Asian countries, dollars spent on insurance account for 2% to 5% of gross domestic product. For example, in the Philippines it's 1.7%, in Thailand, 2.3% and Malaysia, 3.8%, Savercool said.

Vietnam has 10 nonlife insurance companies, five life insurance companies, one insurance brokerage company and one reinsurance company, according to information from the International Trade Administration, a U.S. government agency within the Department of Commerce.

The nonlife market is dominated by domestic companies either alone or in a joint venture, and the engagement of foreign nonlife insurance companies is "insignificant," the International Trade Administration said.

Like a lot of developing countries, Vietnam is dismantling its government-run insurance company, Savercool said. "Insurance is being transformed from a government entity established for the protection of government activity to a private-sector activity. That's a significant change for them."

The U.S. Senate will vote next on the bilateral trade agreement. Vietnam also has to approve the agreement, but its government has indicated it won't seek approval from its Legislature until Congress approves, Savercool said.

Dennis Kelly is Washington bureau manager.